Wealth Redistribution through Balance Sheet Revaluations - Evidence from Norway

Abstract: This thesis investigates the impact of fluctuations in inflation, monetary policy, and oil prices on the balance sheets of Norwegian households across the wealth distribution. Using a Bayesian Structural Vector Autoregression model, this study simulates the shocks and assesses their transmission through the unexpected inflation and portfolio composition channel throughout the wealth distribution. The result shows that post an inflation shock, wealthier households initially experienced a temporary surge in wealth. In contrast, the poorest households show a steadier return to the pre-shock state due to their balance sheet predominantly comprising of debt. Furthermore, the impact of an interest rate increase shock showed that most households experienced a wealth decrease, while the poorest households' significantly increased. The oil price shock yielded results similar to the monetary policy shock, but that is highly ambiguous. The analysis is repeated with an extended model with the additional variables of the output gap and exchange rate, further strengthening the results of the two first shocks while providing even more dubious results for the oil price shock. These findings showcase the vulnerability of the poorer segments of the population to monetary shocks.